Given the following data:
$$\begin{array} { l r r r }
&{ \text { Per Unit } } & \text { Total } \
\text { Sales } & \$ 15 & \$ 45,000 \
\text { Less variable expenses } & 9 & 27,000 \
\text { Contribution margin } & 6& 18,000 \
\text { Less fixed expenses } & & 12,000 \
\text { Operating profit } & & \$ 6,000
\end{array}$$
If sales decrease by 500 units, by what percent would fixed costs have to be reduced by to maintain current operating profit?
A) 50.0%.
B) 33.3%.
C) 25.0%.
D) 16.7%.

Question

Given the following data:
$$\begin{array} { l r r r } 
&{ \text { Per Unit } } & \text { Total } \
\text { Sales } & \$ 15 & \$ 45,000 \
\text { Less variable expenses } & 9 & 27,000 \
\text { Contribution margin } & 6& 18,000 \
\text { Less fixed expenses } & & 12,000 \
\text { Operating profit } & & \$ 6,000
\end{array}$$
If sales decrease by 500 units, by what percent would fixed costs have to be reduced by to maintain current operating profit?
A) 50.0%.
B) 33.3%.
C) 25.0%.
D) 16.7%.

Quizplus · Accepted Answer

If sales decrease by 500 units, the contribution margin decreases by $3,000 (500 units x $6). To maintain the current operating profit of $6,000, fixed costs must also decrease by $3,000. The original fixed costs are $12,000, so the reduction needed is $3,000/$12,000 = 25.0%.

Given the Following Data If Sales Decrease by 500 Units, by What Percent Would